New policies are needed to tackle the surprising rise in inequality within developing countries, even as they have become more integrated into the global economy. That was the core message of a panel of researchers speaking at a science breakfast sponsored by Mars, Inc., on Thursday, 24 August at the 6th Lindau Meeting on Economic Sciences.

The fact that the dramatic growth in average income in large developing countries like China and India has led to increased inequality is ‘deeply troubling’, according to the opening speaker, Nobel Laureate Eric Maskin.

This seems to contradict the long-established theory of comparative advantage, which predicts that relative wages of unskilled labour should rise as their trade increases. It also contrasts with what happened in previous periods of globalisation, for example, in the late 19th century.

Professor Maskin explained that what has changed is that the production process has been internationalised. Communications technologies now allow companies to establish just-in-time global supply chains, and to employ skilled workers around the world, so that the gains of trade are no longer distributed on a countrywide level.

Domestic migration is also fuelling inequality, he added. There is a growing gap between the city and the countryside in developing countries. Those who move to the cities have improved opportunities for education, jobs and income, while the countryside is increasingly impoverished.

Panel member Devaki Ghose, of the University of Virginia, one of the young economists attending the Lindau meeting, drew on her experience of research in India to reinforce these points.

She noted that India’s high-tech sectors, such as its IT outsourcing business, which has been a huge international success, employ only a small percentage of the Indian workforce. It is only open to a small proportion of the population – under 6% – who are both computer-literate and English speakers. She also said that these high-tech firms are concentrated in just a few states in India where they have close links to universities.

In contrast, 60% of the Indian population works in agriculture, where they face problems of low productivity, poverty and lack of investment in modern production techniques.

Dr Ghose cited a personal example, where a large family she knew from a tribal area was unable to farm all the land they owned, but were too poor either to hire extra labour or to buy expensive inputs like fertiliser to improve crop yields. What’s more, the legal system in India, which seeks to protect poor farmers’ land ownership rights, prevented them from selling part of their landholdings to others who could make more productive use of it.

Genetic scientist Dr Howard-Yana Shapiro, chief agricultural officer at Mars, Inc, argued that now was the time for action. What we need, he said, is ‘a change of theory, not a theory of change.’

He pointed out that 37% of the population in rural Africa is malnourished at birth, as are 43% of Indian children. There is a moral obligation to tackle the problem of chronic malnutrition in countries where farmers cannot produce enough food to feed themselves. He said that only an inclusive approach, which could both discover solutions and scale them up would work, using the skills of industry, universities, NGOs and governments alike.

Mars is committed to developing new crop varieties with increased yields that can be freely distributed to farmers. Dr Shapiro said that although the yields on the ten major food crops may have reached their natural limits, there are great gains to be made by genetic modification of 100 less widely grown food crops in Africa.

In India, Mars is working with farmers to improve the yields of chick peas, one of its major food crops yet a commodity for which continuing low yields means it still has to be imported from abroad. Mars has also mapped the genetic sequence of cacao to breed a higher yielding, disease resistant tree, which can also produce tastier chocolate. The company has made the genome data freely available to growers in developing countries.

Professor Maskin suggested that higher crop yields alone would not be enough to tackle rural inequality, as early adopters would gain at the expense of those who could not or would not take up the new crop varieties.

There was considerable discussion about the incentives that might motivate companies to take actions that tackle poverty and inequality, including improving human capital through training. Professor Maskin expressed scepticism that many companies would do so on their own initiative without government incentives such as tax breaks.

Dr Shapiro commented that although Mars had an advantage as it is a privately held company that is not subject to short-term pressure from shareholders, other companies, such as rivals Nestle and Unilever, were following in its footsteps, in their own long-term self-interest.

He added that tackling climate change was another area where companies, such as Mars, were increasingly willing to act on their own to develop a zero carbon footprint, independent of government actions such as the US decision to withdraw from the Paris agreement on climate change.

About Steve Schifferes

Professor Steve Schifferes was the first Marjorie Deane professor of Financial Journalism at City University of London where he set up a new MA in Financial Journalism which has attracted students from around the world. His main research has focused on the financial crisis, trust in journalism, and the history of business journalism. His latest book, the Media and Austerity, will be published by Routledge next. Prior to his academic career he was an economics correspondent for BBC News.

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